European Union Rebuffs Irish Pressure to Delay Stress Tests

April 3 (Bloomberg) -- The European Commission said it’s
“essential” Ireland completes its next round of bank stress
tests by the end of the year, rebuffing attempts by the bailed-out nation to delay the assessment.

Ireland needs to remove uncertainty around banks’ asset
quality and conduct a “rigorous and credible” test before the
country exits its rescue program at the year-end, the European
Commission said in a staff review of Ireland’s bailout supplied
to German lawmakers and obtained by Bloomberg News. Finance
Minister Michael Noonan had said in February that he’d prefer
the country’s banks to be tested as part of a Europe-wide review
which he expects to take place in 2014.

Noonan has argued that holding stress tests alongside the
EU review would demonstrate that the country’s banking system is
returning to normality after it received 64 billion euros ($82
billion) of taxpayer aid since 2008. Allied Irish Banks Plc
Chief Executive Officer David Duffy has said a delay would allow
lenders to spend this year focussing on easing the terms of
residential mortgages in arrears.

“Banks are moving forward with long-term restructurings of
mortgages under the direction of the central bank,” said
Stephen Lyons, a credit analyst at Dublin-based Davy. “Rather
than test the banks on hypothetical situations, it makes sense
to judge the interim success of new restructuring techniques and
use this data in the next round of stress-tests.”

Ireland’s central bank, which carried out stress tests in
2010 and 2011, last month set quarterly targets for banks to
tackle “unprecedented levels” of mortgage arrears. Lenders
have begun writing off irrecoverable home loans and allowing
borrowers to suspend repayments on part of their mortgage until
their personal circumstances improve.

Almost 12 percent of Irish owner-occupier loans were at
least three months in arrears at the end of December, compared
with almost 19 percent of buy-to-let mortgages, the central bank
said on March 7.